As life is quite uncertain, bankruptcy can strike anyone, anytime. There have been several cases in the past when even wealthy people have declared themselves bankrupt. When you are certain that you will not be able to pay back your creditors, you can approach a court to declare your bankruptcy.
So, what happens after you declare yourself bankrupt? Are your debts wiped out entirely? Do creditors get hold of your property, bank accounts, jewelry and other assets? Well, to answer such questions, let’s take a quick look at what happens if you become bankrupt.
Will you lose your property?
It will depend on whether you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. In case of Chapter 7, you will need to sell some of your assets to pay a part of your dues. However, assets like house, car and retirement account may be exempt based on state laws. It’s recommended that you consult a bankruptcy attorney to find out assets you can keep and the ones you will be required to sell under Chapter 7 bankruptcy in your state.
In Chapter 13 bankruptcy, you will not be required to sell any of your assets. Instead, your total dues will be consolidated and treated as a new loan. You can pay this new loan either in installments or in full over a period of 3-5 years, as per the terms of the agreement. However, if you default on this new loan, your creditors may have the right to get hold of your assets and use it to pay the dues.
Life after bankruptcy – Challenges you can face
Even if you clear all your dues in the time frame provided under the bankruptcy agreement, you will continue to face challenges. Some of these challenges are listed below.
Adverse credit report – If you file for Chapter 7 bankruptcy, it will continue to show in your credit report for up to 10 years. In case of Chapter 13 bankruptcy, it will show up on your credit report for up to 7 years. Due to this, it will become difficult for you to get new loans. Even if you get a loan, it will be offered at higher than standard interest rates.
However, the good thing about credit score system is that it gives more importance to new information than old information. So, if you make your payments on time after bankruptcy, you can gradually improve your credit report.
Job prospects – Your bankruptcy may have a negative impact on your career. That’s because some employers check credit history of applicants before making them job offers. Not every employer does that, but around 30% of them do.
What you can do to improve credit score post bankruptcy?
Keep track of your credit history and score at regular intervals. Make sure that all information is updated and there are no errors. If you notice any mistakes, you can raise a dispute with the credit rating agency. Also, make efforts to improve your finances by increasing savings or boosting your income. Make your payments regularly, so that your credit score can be improved with every passing year.